In Media Releases

Media ReleaseStatement by Glenn Stevens, Governor: Monetary Policy

Number2009-19

Date1 September 2009

At its meeting today, the Board decided to leave the cash rate unchanged at 3.0 per
cent.

With considerable economic policy stimulus in train around the world, the global
economy is resuming growth. Growth in China has been very strong, which is
having a significant impact on other economies in the region and on commodity
markets. The major economies appear to be approaching a turning point. Most
observers still expect only modest growth in the world economy in 2010, due
to the continuing legacy of the financial crisis, though forecasts have been
revised up recently.

Sentiment in global financial markets has continued to improve. But the effects of
economic weakness on the balance sheets of financial institutions will still
be coming through for a while. This constitutes one of the main remaining
risks to the global expansion. For the recovery to be durable, continued
progress in restoring balance sheets is essential.

Economic conditions in Australia have been stronger than expected, with consumer
spending, exports and business investment notable for their resilience. Measures
of confidence have recovered. Some spending has probably been brought forward
by the various policy initiatives; in those areas demand may soften in the
near term. Some types of capital spending are also likely to be held back
for a while by financing constraints. But overall, it now appears that investment
may not be as weak over the year ahead as earlier expected. Higher dwelling
activity and public demand will also start to provide more support to spending
soon and, hence, growth is likely to firm going into 2010.

Unemployment has not, to this point, risen as far as had been expected. Weaker demand
for labour, evident in a decline in hours worked, nonetheless has seen a
moderation in labour costs. Helped by this and the earlier fall in energy
and commodity prices, inflation has been declining, though measures of underlying
inflation remained higher than the target on the latest reading. Underlying
inflation should continue to moderate in the near term, but the likelihood
of inflation being persistently below the target now looks low.

Credit growth overall remains quite modest. Housing credit has been solid and dwelling
prices have risen over recent months. Business borrowing, on the other hand,
has been declining, as companies have sought to reduce leverage in an environment
of tighter lending standards. Large firms have had good access to equity
capital and access to debt markets appears to be improving, helped by the
better-than-expected economic conditions and increased willingness on the
part of investors to accept risk.

The Board's judgement is that the present accommodative setting of monetary
policy remains appropriate for the time being. The Board will continue to
adjust monetary policy so as to foster sustainable growth in economic activity
and inflation consistent with the target.